Wednesday, October 26, 2022 |
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MANAGING DIRECTOR: |
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US Treasury Market |
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| Date | 1 mo | 3 mo | 6 mo | 1 yr | 2 yr | 3 yr | 5 yr | 7 yr | 10 yr | 20 yr | 30 yr |
| 10/19/22 | 3.31 | 4.07 | 4.45 | 4.60 | 4.55 | 4.56 | 4.35 | 4.26 | 4.14 | 4.38 | 4.15 |
| 10/20/22 | 3.58 | 4.09 | 4.48 | 4.66 | 4.62 | 4.66 | 4.45 | 4.36 | 4.24 | 4.47 | 4.24 |
| 10/21/22 | 3.55 | 4.09 | 4.43 | 4.58 | 4.49 | 4.52 | 4.34 | 4.28 | 4.21 | 4.54 | 4.33 |
| 10/24/22 | 3.57 | 4.16 | 4.52 | 4.61 | 4.50 | 4.52 | 4.36 | 4.31 | 4.25 | 4.59 | 4.40 |
| 10/25/22 | 3.56 | 4.14 | 4.50 | 4.60 | 4.42 | 4.45 | 4.25 | 4.17 | 4.10 | 4.45 | 4.26 |
Source: U.S. Department of the Treasury, as of 10/25/2022
Ready, Aim and Fire …
"Don't fire till you see the whites of their eyes" is one of the most famous quotations from the Revolutionary War. According to hallowed tradition, the provincial commander at the Battle of Bunker Hill bellowed those words to his soldiers, warning them to preserve their gunpowder until their muskets could do the most damage to the British regulars.
As fate would have it, commercial bankers have generally experienced a decline in liquidity available for bond purchases, in tandem with the decline in bond prices. Nonetheless, some of our client bank portfolio managers have been saving ammunition for signs of a market bottom in benchmark Treasury prices.
It may still be too early, but yesterday’s 19 bps plunge (top-to-bottom) in the yield of 10-year USTNs could be an indication of a change in tone and direction for fixed-income securities, at least for the near term. As of this morning, the 10-year yield is down 30 bps from its recent peak last Friday.
Yesterday’s economic releases suggested higher interest rates may finally be taking a toll on the economy. Consumer Confidence declined much more than expected, as housing prices tumbled the most since 2009 and the Manufacturing Index for the Richmond FRB District dropped twice the anticipated decline.
Further signs of an economic slowing will allow the FRB to moderate the pace at which it has been raising rates. Currently, another 75 bps increase is expected from the FOMC next Wednesday, but the pace of monetary tightening is in question for December and the first quarter of next year.
Fixed-income investors anticipating a cyclical peak in interest rates, and planning to invest accordingly, should consider the wisdom of Ready, Aim and Fire. Assuming their timing is fortuitous, non-callable and non-pre-payable securities will deliver the best returns. Callable bonds and pre-payable securities purchased at deeply discounted prices will also out-perform on a total return basis.
Please let us know if we can assist you in aiming first and firing with deliberation.
Source: Bloomberg
This information is intended for institutional investors only. The material provided in this document/presentation is for informational purposes only and is intended solely for private use. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.
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